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Economic downturn to bring change, not collapse to green sector

The economy is in bad shape, and green businesses will definitely feel it in the months ahead. But firms that deliver great products at competitive prices will come out of this downturn as leading engines of job and GDP growth.

My prediction? Green luxury falls, green necessity rises.

While sales of $100,000 electric cars, solar yachts, and green travel packages to Fiji will go down, the importance of lowering energy costs couldn't get stronger. Thanks to the economic downturn, this week's Oprah Winfrey Show discussed the heightened importance of thrifty ideas such as unplugging appliances when they aren't in use to reduce people's monthly electricity bill. Firms that have a sound business model to provide energy audits of houses and offices and/or that perform practical efficiency upgrades with quick paybacks will have big growth opportunities ahead.

As Sarah Gardner's report on Marketplace yesterday mentions, taxation to achieve behavior change will be tougher to get passed over the next two years. But people are already changing their behavior in a more climate-friendly way. Oil consumption in the US has fallen more than 4% in 2008, with last week's demand almost 9% below the same week in 2007. Since coal and natural gas consumption are expected to rise a slower than normal ~1% and ~2.4% this year, we will probably report a significant nationwide decrease in greenhouse gas emissions for 2008.

The renewal of federal tax credits for wind through 2009 and solar through 2016 guarantees a market as long as financial markets return to some sense of normalcy. One of the problems of the past three years in both wind and solar markets has been an overheating of demand that supply has struggled to provide, leading to higher prices. In 2009, increased supply along with somewhat tempered demand may help to bring much lower prices to green electricity installers. I believe that wind and solar will begin to replace the market share of fossil fuels in electricity next year.

Cleantech companies have received big and growing capital flows over the last few years. If they put those resources to good use and provide energy at increasingly competitive prices, then they will likely continue to grow -- even if the rate may be slower than the recent 30+%. New coal, nuclear, and natural gas power plants have huge construction costs that will also struggle to get financing -- so more flexible distributed generation systems of wind and solar may end up at an advantage in a capital-constrained world. Time will tell.

Many predict consolidation in the solar sector as lower prices put downward pressure on profits next year. But even if there are fewer companies, continued innovation will guarantee them a growing role in our energy future -- especially as the marginal cost of oil production continues to rise over time.

A greener lifestyle that includes more bicycling, public transit, carpooling, and efficiency and less fossil fuel consumption will become a critical element of economic recovery. It will be a tough ride for everyone, but the green sector can come out of it stronger than it's ever been before. And, perhaps most importantly, the health of the Earth can begin to be restored for all its employed and unemployed creatures to enjoy.